Home » Stewart Hutcheon, Dexus
2018 CEO Outlook

Stewart Hutcheon, Dexus

A structural shift is underway and is challenging the traditional shopping centre investment management model as we know it. This creates both a level of caution, and tremendous opportunity to evolve.

The retailer operating business model today is very different to that of 10 years ago. Retailers now have an evolving business model, one that is more flexible and agile than ever before. The model is fundamentally changing the way retail space is being valued as retailers work to manage their profitability margins in a newly competitive environment. Many retailers now run a fully integrated business across both bricks and mortar and online, to give potential customers a seamless retail experience.

The retail landscape in Australia is not perfect but progress is being made right across the industry as retailers and shopping centre owners work hard to remain relevant.

Collaboration to evolve
Dexus is playing a significant role in partnering and collaborating with our retailers on this journey of change. We are working closely with retailers on how retail space in our shopping centres is valued and being utilised. This involves more flexible lease terms reflecting the changing environment and the importance of supporting storage requirements to facilitate local online orders, including click and collect fulfilment and initiatives around sustainable operations, reducing overall expenses. Retailers need to remain profitable as their sustainable success underpins our future investment growth opportunity.

Recent development activity completed by Dexus has contributed to the changing environment and supports our retailers’ future productivity. The $80-million expansion of Willows in Townsville unlocked greater value for retailers by improving the traffic flow around the entire centre; this resulted in an improved retail offering, delivering first to market brands for the region. The introduction of a new dining and entertainment precinct at Smithfield in Cairns has seen a new customer type interact with the retail destination, as a brand-new state of the art Event Cinemas presents the best movie experience in the region.

Dexus and our retailers are also faced with the Amazon roll-out in Australia, like the rest of the industry. A strong focus on owning value propositions is critical as we look to capitalise on the power of the store and in-centre experience, customer service and activation opportunities to entice shoppers to our retail destinations.
According to the Westpac Market Outlook, December 2017 and January 2018, the staging of Amazon’s ongoing entry to Australia is still uncertain. It’s likely to be quicker than its move into Canada which took the best part of a decade, but not as fast as recent roll-outs in Europe that do not face the same logistical challenges present in Australia’s sparsely populated, far-flung geography.

The basic Amazon proposition is one around value, convenience and selection. Pricing is set to market rather than being aggressively discounted.

Uncertain times
One of the biggest challenges in 2018 is slowing household incomes. Australian households are constrained by high debt, rising energy prices and other cost of living pressures impacting their ability to lift consumer spending. The main driver impacting consumer confidence is the uncertainty around the nation’s and the world’s political environment.

Australia’s politicians must promote stability and clear policies to guide the nation forward. Without a stable government, consumers remain cautious around what’s hiding behind the next corner. A tax cut or tax rises?

We need to manage the fundamentals well and keep operating costs and capital expenditure in check to be able to withstand any significant impacts in the economy.

The Dexus three-tier retail model allows us to respond to the changes that come before us, in a risk adjusted way. Our sub-regional shopping centres are strategically located to capture population growth and focus strongly on providing localised experiences that are meaningful to the communities they serve. Our City Retail precincts operating in Australia’s leading cities offer world class food and beverage and great general amenity. Finally, the investments of Dexus Wholesale Property Fund (DWPF) and our other third-party clients, provide exposure to seven regional and super regional shopping centres that dominate their trade area catchment, while providing rich customer insights and a deeper understanding of the current market trends.

Showcasing value to shoppers is key as Australians manage their household finances. Dexus shopping centres are well positioned to present value, services and everyday needs to the market.

Leading cities
Our cities are where most of our economic output is produced and this presents a key growth opportunity for Dexus. The population of Australia’s capital cities is estimated to grow by 13 million people in the next 40 years. City growth will be driven by increasing density, growth in high-value knowledge-based industries and an appreciation of the amenity of city living.

Key focuses for planners, property owners and stakeholders will be:
• Efficient infrastructure and transport systems including public and shared transport
• Providing opportunities for people to work within 30 minutes from where they live
• Developing viable CBDs, mixed-use suburban hubs and vibrant precincts
• Using technology to improve how cities work

City centres will remain important due to their infrastructure, vibrancy, business influence and clustering of service and knowledge-based industries.

The Dexus investment focus remains on the ownership of high-quality office assets in key business precincts within the four key Australian markets of Sydney, Melbourne, Brisbane and Perth.

These strategically located office assets allow for city retail experiences to continue to emerge across our portfolio, contributing to the activation and amenity on the ground plane of these buildings. Tiffany and Co.’s new Sydney flagship on the corner of King and Pitt Streets, luxury watch brands arriving into 360 Collins in Melbourne, and the growing addition of leading dining experiences across our cities, are ways that Dexus is capitalising on the demand for quality retail in our cities.

Dexus also invests in the healthcare industry, with the recent launch of the Dexus Healthcare Wholesale Property Fund. The investment into quality healthcare property provides further opportunity for retail experiences to unfold within these heavily visited health precincts, servicing the needs of visitors to these health facilities.

The growth in the pharmacy category has been strong and according to the Deloitte Access Economics Business Outlook (Dec 2017), census data shows that the proportion of residents aged over 65 years in Australia has climbed from 6.4% to 6.9% in the last five years alone, leading to more retail sales as older Australians consume more pharmaceutical goods than younger Australians.

Talent unlocks tomorrow
The business success of tomorrow hinges on the decisions senior management take today. One critical decision at Dexus is centred on the talent we have in place to take the organisation forward.

Our people and culture unlock future value and have a number of initiatives designed to attract and retain talent across Dexus. Diversity of gender or cultural background is important but also equally important is diversity of thought.

The leaders of tomorrow will need to think differently and manage the retail environment in new and innovative ways. Maintaining a balance across the retail team is one way we manage the current operating environment to ensure that experience and knowledge is being challenged alongside innovation and opportunity.

We work closely on our talent pipeline to ensure they have the tools to become inspiring leaders into the future. Dexus wants employees to feel a sense of purpose in the workplace, in turn driving greater collaboration and participation and generating more meaningful outcomes. In our recent employment engagement survey, we achieved 87%, which is eight percentage points higher than the Australian National Norm and two percentage points above the Global Property and Asset Management Norm. The approach we take to fostering the talent of tomorrow is well underway.
Experience is everything

2018 will see new experiences and activations as the retail industry in Australia works to stand out from online activity and other major attractions. The in-centre experience is the one area shopping centre managers can instantly influence and change regularly to attract shoppers to visit.

Today’s retail marketeers must innovate, challenge the norm and deliver engaging experiences. Centre marketing managers are the owners of content and experiences and have the ultimate responsibility of curating a story that provides compelling reasons to visit our shopping centres around the country.

Dexus is responding to the growing demand for local experiences, and our activations that invite the community to participate are driving the best return on investment.

Recently QV Melbourne commissioned globally acclaimed Danish artist Tine Bech to complete her first Australian work, which was the centrepiece of a new interactive program of events called Light/Play. The activation delivered over 50,000 interactions across two weeks and provided a unique local setting for the community to dwell and interact with.

People visit places for experiences and to interact with others. In today’s environment delivering an engaging experience is essential in bringing a place to life.


About Dexus
Dexus is an Australian Real Estate Investment Trust, with $24.9 billion of assets under management. Dexus manages and directly invests in high quality Australian office and industrial properties, and actively manages office, industrial, retail and healthcare properties across Australia on behalf of third-party capital partners.

As property innovators, we are deeply committed to working with our customers to provide spaces that engage and inspire, as well as delivering quality, sustainable returns for our investors. Delivering to the needs of our customers and the strength and quality of our relationships will always be central to our success.